The firm also said it had already cut 15,000 jobs in the past year, which was 5,000 more than expected.
BT's woes centre on its global services unit, which handles the network systems of large firms. BT said it had taken a near £1.5bn write-down at this unit. The firm also said that it would be making pension contributions of £525m in each of the next three years. It also cut its dividend sharply from 15.8 pence to 6.5p.
Ian Livingston, Chief Executive, commenting on the results, said: "Three out of four of BT's lines of business have performed well in spite of fierce competition and the global economic downturn. However this achievement has been overshadowed by the unacceptable performance of BT Global Services and the resulting charges we have taken. During the year we have changed the leadership of BT Global Services and started to turn the division around.
"With a recovery programme for BT Global Services in place and our heightened focus on costs and customer service, we now want to accelerate our plans for our future networks. We will examine doubling the pace of the roll out of super fast broadband next year within existing capital expenditure plans, bringing fibre based services within the reach of more than a million homes and businesses and securing the jobs of a thousand BT people.
"In the coming year we will extend the record of operational delivery already demonstrated in three out of our four divisions right across the group. We expect to deliver a net reduction in operating costs and capital expenditure of well over £1 billion in 2009/10. This will enable us to generate free cash flow, before any pension deficit payments, in excess of £1 billion in 2009/10 and beyond.
"I believe BT will emerge from the recession a stronger company to the benefit of our customers and shareholders."
Sir Mike Rake, Chairman, said: "This has been a challenging year in which BT has had to tackle some significant issues. I am confident that decisive action by management has addressed the underlying problems within BT Global Services and has laid the foundation for the group to deliver a significant improvement in performance in 2009/10 and the years to come.
"We have agreed with the trustees of the BT Pension Scheme the pension contributions for the next three years enabling the Board to announce a sustainable dividend policy.
"The proposed final dividend of 1.1p gives a full year dividend of 6.5p which rebases dividend payments to a level which we are confident is sustainable. The Board is committed to delivering attractive returns for shareholders and believes that the operational improvements in the business will generate sufficient cash flow to allow the dividend to grow at the same time as investing in the business, reducing debt and supporting the pension scheme."
The Communication Workers Union (CWU) says that the new announcement of job losses will be challenging for all at BT but that a voluntary approach to redundancies must be retained.
Andy Kerr, CWU deputy general secretary, said: “15,000 is a very challenging level of job losses, especially on the back of last year’s reductions.
“We expect the majority of job losses to be third party – contractors and agency staff – as they were last year with many jobs being lost outside of the UK. However this is a serious day for staff at BT.
“There was a damaging mis-management of Global Services by senior managers, which has been the main cause of these poor results. These managers have been removed and we’re hopeful that this difficult time is now behind the company.
“We’re working closely with the company to ensure any losses are voluntary and we’re looking at new ways of finding new work and retaining permanent employees, including secondment agreements.”